TOPIC: Monetary Obligations
00 as accrued
G.R. No. 105188 January 23, 1998
MYRON C. PAPA, Administrator of the Testate Estate of
Angela M. Butte, petitioner,
vs.
A.U. VALENCIA and CO. INC., FELIX PEÑARROYO, SPS.
ARSENIO B. REYES & AMANDA SANTOS, and DELFIN
JAO, respondents.
FACTS: Sometime in June 1982, herein private respondents
A.U. Valencia and Co., Inc. (hereinafter referred to as
respondent Valencia, for brevity) and Felix Peñarroyo
(hereinafter called respondent Peñarroyo), filed with the
Regional Trial Court of Pasig, Branch 151, a complaint for
specific performance against herein petitioner Myron C.
Papa, in his capacity as administrator of the Testate Estate of
one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron
C. Papa, acting as attorney-in-fact of Angela M. Butte, sold to
respondent Peñarroyo, through respondent Valencia, a parcel
of land, consisting of 286.60 square meters, located at corner
Retiro and Cadiz Streets, La Loma, Quezon City, and covered
by Transfer Certificate of Title No. 28993 of the Register of
Deeds of Quezon City; that prior to the alleged sale, the said
property, together with several other parcels of land likewise
owned by Angela M. Butte, had been mortgaged by her to the
Associated Banking Corporation (now Associated Citizens
Bank); that after the alleged sale, but before the title to the
subject property had been released, Angela M. Butte passed
away; that despite representations made by herein
respondents to the bank to release the title to the property
sold to respondent Peñarroyo, the bank refused to release it
unless and until all the mortgaged properties of the late
Angela M. Butte were also redeemed; that in order to protect
his rights and interests over the property, respondent
Peñarroyo caused the annotation on the title of an adverse
claim as evidenced by Entry No. P.E.-6118/T-28993, inscribed
on 18 January 1997.
The complaint further alleged that it was only upon the
release of the title to the property, sometime in April 1977,
that respondents Valencia and Peñarroyo discovered that the
mortgage rights of the bank had been assigned to one Tomas
L. Parpana (now deceased), as special administrator of the
Estate of Ramon Papa, Jr., on 12 April 1977; that since then,
herein petitioner had been collecting monthly rentals in the
amount of P800.00 from the tenants of the property, knowing
that said property had already been sold to private
respondents on 15 June 1973; that despite repeated demands
from said respondents, petitioner refused and failed to deliver
the title to the property. Thereupon, respondents Valencia
and Peñarroyo filed a complaint for specific performance,
praying that petitioner be ordered to deliver to respondent
Peñarroyo the title to the subject property (TCT 28993); to
turn over to the latter the sum of P72,000.
rentals as of April 1982, and the monthly rental of P800.00
until the property is delivered to respondent Peñarroyo; to
pay respondents the sum of P20,000.00 as attorney's fees;
and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been
mortgaged to the Associated Banking Corporation (now
Associated Citizens Bank). He contended, however, that the
complaint did not state a cause of action; that the real
property in interest was the Testate Estate of Angela M. Butte,
which should have been joined as a party defendant; that the
case amounted to a claim against the Estate of Angela M.
Butte and should have been filed in Special Proceedings No.
A-17910 before the Probate Court in Quezon City; and that, if
as alleged in the complaint, the property had been assigned
to Tomas L. Parpana, as special administrator of the Estate of
Ramon Papa, Jr., said estate should be impleaded. Petitioner,
likewise, claimed that he could not recall in detail the
transaction which allegedly occurred in 1973; that he did not
have TCT No. 28993 in his possession; that he could not be
held personally liable as he signed the deed merely as
attorney-in-fact of said Angela M. Butte. Finally, petitioner
asseverated that as a result of the filing of the case, he was
compelled to hire the services of counsel for a fee of
P20,000.00 for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was
allowed to intervene in the case. Making common cause with
respondents Valencia and Peñarroyo, respondent Jao alleged
that the subject lot which had been sold to respondent
Peñarroyo through respondent Valencia was in turn sold to
him on 20 August 1973 for the sum of P71,500.00, upon his
paying earnest money in the amount of P5,000.00. He,
therefore, prayed that judgment be rendered in favor of
respondents.
For his part, petitioner, as administrator of the Testate Estate
of Angela M. Butte, filed a third-party complaint against
herein private respondents, spouses Arsenio B. Reyes and
Amanda Santos (respondent Reyes spouses, for short). He
averred, among other's that the late Angela M. Butte was the
owner of the subject property; that due to non-payment of
real estate tax said property was sold at public auction the
City Treasurer of Quezon City to the respondent Reyes
spouses on 21 January 1980 for the sum of P14,000.00; that
the one-year period of redemption had expired; that
respondents Valencia and Peñarroyo had sued petitioner Papa
as administrator of the estate of Angela M. Butte, for the
delivery of the title to the property; that the same
aforenamed respondents had acknowledged that the price
paid by them was insufficient, and that they were willing to
add a reasonable amount or a minimum of P55,000.00 to the
price upon delivery of the property, considering that the same
was estimated to be worth P143,000.00; that petitioner was
willing to reimburse respondents Reyes spouses whatever
amount they might have paid for taxes and other charges,
since the subject property was still registered in the name of
the late Angela M. Butte; that it was inequitable to allow
respondent Reyes spouses to acquire property estimated to
be worth P143,000.00, for a measly sum of P14,000.00.
Petitioner prayed that judgment be rendered canceling the
tax sale to respondent Reyes spouses; restoring the subject
property to him upon payment by him to said respondent
Reyes spouses of the amount of P14,000.00, plus legal
interest; and, ordering respondents Valencia and Peñarroyo to
pay him at least P55,000.00 plus everything they might have
to pay the Reyes spouses in recovering the property.
Respondent Reyes spouses in their Answer raised the defense
of prescription of petitioner's right to redeem the property.
At the trial, only respondent Peñarroyo testified. All the other
parties only submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREUPON, judgment is hereby rendered
as follows:
1) Allowing defendant to redeem from
third-party defendants and ordering the
latter to allow the former to redeem the
property in question, by paying the sum of
P14,000.00 plus legal interest of 12%
thereon from January 21, 1980;
2) Ordering defendant to execute a Deed of
Absolute Sale in favor of plaintiff Felix
Peñarroyo covering the property in question
and to deliver peaceful possession and
enjoyment of the said property to the said
plaintiff, free from any liens and
encumbrances;
Should this not be possible, for any reason
not attributable to defendant, said
defendant is ordered to pay to plaintiff Felix
Peñarroyo the sum of P45,000.00 plus legal
interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Peñarroyo to
execute and deliver to intervenor a deed of
absolute sale over the same property, upon
the latter's payment to the former of the
balance of the purchase price of
P71,500.00;
Should this not be possible, plaintiff Felix
Peñarroyo is ordered to pay intervenor the
sum of P5,000.00 plus legal interest of 12%
from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the
amount of P5,000.00 for and as attorney's
fees and litigation expenses.
Petitioner appealed the aforesaid decision of the trial court to
the Court of Appeals, alleging among others that the sale was
never "consummated" as he did not encash the check (in the
amount of P40,000.00) given by respondents Valencia and
Peñarroyo in payment of the full purchase price of the
subject lot. He maintained that what said respondent had
actually paid was only the amount of P5,000.00 (in cash) as
earnest money.
In affirming the trial court's decision, CA held that contrary to
petitioner's claim that he did not encash the aforesaid check,
and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said
check. On the other hand, respondent Peñarroyo testified in
court that petitioner Papa had received the amount of
P45,000.00 and issued receipts therefor. According to
respondent court, the presumption is that the check was
encashed, especially since the payment by check was not
denied by defendant-appellant (herein petitioner) who, in his
Answer, merely alleged that he "can no longer recall the
transaction which is supposed to have happened 10 years
ago."
On petitioner's claim that he cannot be held personally liable
as he had acted merely as attorney-in-fact of the owner,
Angela M. Butte, respondent court held that such contention
is without merit. This action was not brought against him in
his personal capacity, but in his capacity as the administrator
of the Testate Estate of Angela M. Butte. 4
On petitioner's contention that the estate of Angela M. Butte
should have been joined in the action as the real party in
interest, respondent court held that pursuant to Rule 3,
Section 3 of the Rules of Court, the estate of Angela M. Butte
does not have to be joined in the action. Likewise, the estate
of Ramon Papa, Jr., is not an indispensable party under Rule 3,
Section 7 of the same Rules. For the fact is that Ramon Papa,
Jr., or his estate, was not a party to the Deed of Absolute Sale,
and it is basic law that contracts bind only those who are
parties thereto. 5
Respondent court observed that the conditions under which
the mortgage rights of the bank were assigned are not clear.
In any case, any obligation which the estate of Angela M.
Butte might have to the estate of Ramon Papa, Jr. is strictly
between them. Respondents Valencia and Peñarroyo are not
bound by any such obligation.
Petitioner argues that respondent Court of Appeals erred in
concluding that alleged sale of the subject property had been
consummated. He contends that such a conclusion is based
on the erroneous presumption that the check (in the
amount of P40,000.00) had been cashed, citing Art. 1249 of
the Civil Code, which provides, in part, that payment by
checks shall produce the effect of payment only when they
have been cashed or when through the fault of the creditor
they have been impaired. 7 Petitioner insists that he never
cashed said check; and, such being the case, its delivery never
produced the effect of payment. Petitioner, while admitting
that he had issued receipts for the payments, asserts that said
receipts, particularly the receipt of PCIB Check No. 761025 in
the amount of P40,000.00, do not prove payment. He avers
that there must be a showing that said check had been
encashed. If, according to petitioner, the check had been
encashed, respondent Peñarroyo should have presented PCIB
Check No. 761025 duly stamped received by the payee, or at
least its microfilm copy.
Finally, the estate of Angela M. Butte is not an indispensable
party. Under Section 3 of Rule 3 of the Rules of Court, an
executor or administrator may sue or be sued without joining
the party for whose benefit the action is presented or
defended.
Neither is the estate of Ramon Papa, Jr. an indispensable
party without whom, no final determination of the action can
be had. Whatever prior and subsisting mortgage rights the
estate of Ramon Papa, Jr. has over the property may still be
enforced regardless of the change in ownership thereof.

ISSUE: Whether or not the check is a valid tender of payment.

HELD: YES. Petitioner's assertion that he never encashed the

aforesaid check is not substantiated and is at odds with his
statement in his answer that "he can no longer recall the
transaction which is supposed to have happened 10 years
ago." After more than ten (10) years from the payment in
party by cash and in part by check, the presumption is that
the check had been encashed. As already stated, he even
waived the presentation of oral evidence.

Granting that petitioner had never encashed the check, his

failure to do so for more than ten (10) years undoubtedly
resulted in the impairment of the check through his
unreasonable and unexplained delay.

While it is true that the delivery of a check produces the

effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor is
prejudiced by the creditor's unreasonable delay in
presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and
if he from whom it is received sustains loss by want of such
diligence, it will be held to operate as actual payment of the
debt or obligation for which it was given. 11 It has, likewise,
been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury 12 unless
presentment is otherwise excused. This is in harmony with
Article 1249 of the Civil Code under which payment by way of
check or other negotiable instrument is conditioned on its
being cashed, except when through the fault of the creditor,
the instrument is impaired. The payee of a check would be a
creditor under this provision and if its no-payment is caused
by his negligence, payment will be deemed effected and the
obligation for which the check was given as conditional
payment will be discharged. 13

Considering that respondents Valencia and Peñarroyo had

fulfilled their part of the contract of sale by delivering the
payment of the purchase price, said respondents, therefore,
had the right to compel petitioner to deliver to them the
owner's duplicate of TCT No. 28993 of Angela M. Butte and
the peaceful possession and enjoyment of the lot in question.